This article was published in the Appellate, Consumer Protection, Health, Life Sciences and Product Liability sections of Law360 on March 12, 2015. © Copyright 2015, Portfolio Media, Inc., publisher of Law360. It is republished here with permission.
On Feb. 25, 2015, nearly two years after argument, the South Carolina Supreme Court directed entry of a $136 million judgment against Janssen Pharmaceuticals Inc.1 These civil penalties stemmed from a suit brought by the state's attorney general relating to Risperdal, Janssen’s “atypical,” or “second generation,” anti-psychotic medication, which has been on the market since 1994. The court found Janssen’s communications to doctors had a “tendency to deceive,” even though there was no evidence that any doctor had been deceived or any patient harmed.
The state made two allegations of misconduct by Janssen: (1) its failure to use the Changes Being Effected provision to strengthen the Risperdal label regarding weight gain and metabolic effects (the labeling claim)2 and (2) the sending of a November 2003 Dear Doctor letter that the U.S. Food and Drug Administration's Division of Drug Marketing, Advertising and Communications3 found misleading because it undercut a classwide warning on metabolic effects required by the FDA (the DDL claim). On both claims, the jury found Janssen violated the South Carolina Unfair Trade Practices Act. The trial judge imposed penalties of $327 million, which the court reduced to $136 million.4
Professing to protect patients — none of whom suffered injury — and doctors — none of whom were misled — the South Carolina Supreme Court approved a huge penalty, but gave short shrift to important legal issues, such as federal preemption and the First Amendment. The court’s decision essentially permits the state to act as an enforcer for the FDA through an expansion of state consumer protection laws.
Risperdal, as the court grudgingly acknowledged, is an “effective drug” used to treat serious mental illnesses. The state’s own expert, testifying in another case, stated that “second-generation anti-psychotics are among the most powerful disease modifiers in all of modern medicine and that psychiatrists felt [Risperdal] was a ‘miracle drug’ because it did not have the serious side effects of first-generation anti-psychotics.”5
No Harm, But Huge Penalties
According to the South Carolina Supreme Court, there was “little evidence of actual harm” and the medical community “was aware of the risks associated with Risperdal.” In fact, by 2000, “the risks and adverse side effects associated with atypical anti-psychotics were fairly well known.”
What, then, is the basis for imposing large penalties? The court held that, to establish a SCUTPA claim, the state had to show only that Janssen’s conduct had a “tendency to deceive,” regardless whether there was any actual deception. The court dismissed as irrelevant to South Carolina the decisions of other courts finding in Janssen’s favor on claims relating to the marketing of Risperdal brought under state Medicaid fraud statutes.6
The decision contains strong language about Janssen’s alleged misconduct based on “[a]n objective review of the evidence.”7 According to the court, Janssen’s conduct was “reprehensible and in callous disregard for the health and welfare of the public” and Janssen had a “corrupt corporate culture.” The court seemed offended by Janssen’s desire to maintain market share for Risperdal and pointed to misleading efforts to distinguish Risperdal from a competitor.
The Labeling Claim
The state’s first claim was that Janssen should have made a CBE label change to strengthen the warning about the “degree of risks associated with Risperdal.” The court’s analysis is flawed,8 as it did not address whether the CBE process was available to Janssen. Janssen could not implement a CBE unless there was new and reasonable evidence of an association between Risperdal and metabolic effects,9 but the court made no finding that the medical evidence met this standard.10 The court also did not identify what language Janssen should have used, when the language should have been added or whether the FDA would have approved it.
The court acknowledged that, by January 2004, Janssen had updated the Risperdal label to include new information on diabetes and hyperglycemia, per the FDA’s September 2003 classwide directive. The court missed the fact that the CBE provision did not allow Janssen to rewrite the label the FDA had directed Janssen to use after extensive review by the FDA of the metabolic issues. The court approved penalties for use of the label in the period January 2004 to April 2007, which is after Janssen added the FDA’s required warning on metabolic effects.11
The court rejected arguments that FDA approval of the label protected Janssen from...
